LEXINGTON FAYETTE URBAN COUNTY GOVERNMENT - Lexington-Fayette Urban County ...
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LEXINGTON FAYETTE URBAN COUNTY
GOVERNMENT
2020
Form 228
Net Profits License Fee
Return Instructions
Due date of the return: FIFTEENTH DAY OF THE FOURTH MONTH FOLLOWING THE CLOSE OF THE FISCAL YEAR
(APRIL 15, 2021 FOR CALENDAR YEAR FILERS)
Make checks payable to: LEXINGTON FAYETTE URBAN COUNTY GOVERNMENT (LFUCG)
Mail returns to: DIVISION OF REVENUE
LEXINGTON-FAYETTE URBAN COUNTY GOVERNMENT
PO BOX 14058
LEXINGTON KY 40512
Any questions please call: (859) 258-3340 Website: www.lexingtonky.gov/revenue Hours: 8:00am-5:00pmThe following instructions are provided to aid the licensee in the completion of Form 228, Net Profits License
Fee Return. They are not intended to be all-inclusive and therefore should be used only as a supplement to
the existing License Fee Ordinances and Regulations. If you have any questions that are not addressed in
these instructions please refer to the License Fee Ordinance. Any interpretation of these instructions which
is inconsistent with the ordinance is to be resolved in favor of the ordinance.
Who Must File Form 228:
1. Corporations, partnerships, sole proprietorships, estates and trusts, or other businesses
engaged in an occupation, trade, profession, enterprise or other activity with 1) business
activity in Fayette County, Kentucky and 2) business nexus in Fayette County, Kentucky,
sufficient to justify the imposition of the license fee.
2. Individuals and those fiduciaries acting on behalf of individuals or deceased individuals
having rental income, if the gross receipts arising from the rental of real property
located within Fayette County are greater than or equal to
$50,000 a year. Any other business entity is presumed to be in business regardless of the
rental income amounts.
You Must File Form 228 Even If:
Your business activity resulted in a loss for the tax year. Complete Form 228 according to the
instructions provided, sign the form and return it to the Division of Revenue.
You were not actively engaged in business within Fayette County during the year. Indicate “No
Business Activity” on Form
228. Sign the form and return it to the Division of Revenue.
Your business activity ceased prior to the completion of the tax period. Complete Form 228
according to the instructions provided and check “Final Return” box on the form. Complete
question G, sign the form and return it to the Division of Revenue.
You applied for a business license with the intention of starting a business but never transacted
business within Lexington- Fayette County. Check the box designated “FINAL RETURN”,
complete question G, sign and date the form.
As a sole proprietor, your gross receipts were equal to or less than $4,400.00. You must file a
return to qualify for the exemption.
When to File: Form 228 must be delivered or postmarked by the 15th day of the 4th month after the end of
the fiscal year (April 15, 2021 for calendar year filers).
Where to File: All returns should be mailed to the Lexington-Fayette Urban County Government, P.O. Box
14058, Lexington, KY 40512, or delivered to 200 E. Main St, along with your check made payable to
Lexington-Fayette Urban County Government (abbreviated LFUCG).
Signature: If the return is being filed by a corporation, it must be signed and dated by a corporate officer
authorized to sign. If the return is being filed by a partnership, it must be signed by a general partner. If the
return is being filed by a sole proprietor, it must be signed by that individual. Additionally, the licensee who
signs the return must print his/her name and phone number in the area provided.Extensions: If an extension of time for filing is required, a separate extension request to the Lexington-
Fayette Urban County Government is mandatory in all cases. You must file Form 228 EXT or a copy of your
federal extension application to request an automatic 6-month extension to file the Net Profit License Fee
Return. All extension requests should include your Division of Revenue account number. The request must be
postmarked or hand delivered to the Division on or before the original due date and it must be accompanied
by the amount estimated as due. If an extension of time for the filing of a return has been granted, any
balance of the occupational tax unpaid by the regular due date bears interest at the rate of twelve percent
(12%) per annum.
Estimated Tax - Taxpayers other than sole proprietors who may have a total tax obligation above $5,000.00
in any tax year are required to submit quarterly estimated payments.
Penalties for Failure to File and/or Pay: There is a five percent (5%) penalty per month, or a fraction of a
month, to a maximum of twenty-five percent (25%) of the total license tax liability for failure to file and/or
pay a tax return by the regular or extended due date. Pursuant to KRS 67.790, there is a minimum $25.00
penalty for failure to file and/or pay any return or report by the due date.
Interest: Interest is computed at 1% penalty per month, or a fraction of a month from the original due date
until the date of payment.
Refund Request: Claims for refund or credit must be submitted within two (2) years from the due date of the
tax return, or two (2) years from payment, whichever is later.
State Exemptions The following persons are exempt under Kentucky law from the net profits license fee and
are not required to file a return.
1. Any company that pays both an ad valorem tax and a franchise tax pursuant to the
provisions of KRS 136.120.
2. Persons whose sole business activity is the manufacture of and/or sale of alcoholic
beverages. (However, persons having only a portion of their business activity being derived
from the manufacturing and/or selling of alcoholic beverages are required to file a return,
but may exclude that portion of their net profits derived from such manufacture and/or
sale of alcoholic beverages on the appropriate Line of the Worksheet)
3. Insurance companies incorporated under the laws of and doing business in the
Commonwealth of Kentucky, except as provided in KRS 91A.080.
4. Banks, trust companies, combined banks and trust companies, combined trust, banking and
title businesses and savings and loan associations, whether state or federally chartered.
5. Persons whose sole wages, salaries, commissions or other compensations for work
performed or services rendered in Fayette County, Kentucky, are derived from service as
members of the Kentucky National Guard for active duty training, unit training assemblies
and annual field training.
6. Persons engaged in the business of conducting a race track at which races are run for
stakes, purses or prizes, under the jurisdiction of the State Racing Commission, whose only
activity in Fayette County is the conducting of such race track and/or the operating or
maintenance of pari-mutuel machines.
Note: Those organizations that pay wages, salaries, commissions or other compensation for work
performed or services rendered within Fayette County must apply for a license fee account and
submit withholdings on those wages, salaries, commissions or other compensation.Special Provisions of Local Laws: The following persons are exempt under Fayette County ordinances from
the net profits license fee and are not required to file a Net Profits License Fee Return:
a) With regards to income or entities, Proof of Internal Revenue Service approval of not-for-
profit status must be furnished upon application for a license fee account and/or upon the
request of the Division of Revenue.
b) Nonresidents who sell farm products, other than trees, shrubs, or ornamental plants, in
the Urban County, or nonresident owners who sell or who board livestock in the Urban
County for breeding purposes.
c) Persons authorized by the Lexington-Fayette Urban County Government to demonstrate,
sell or offer for sale any goods, wares or merchandise at any festival or event sponsored it.
d) Funds received from the state as a share of the various tobacco settlement funds to be paid
to farmers are exempt from inclusion in net profits for the purpose of calculating the net
profits which are subject to this occupational license fee.
Licensee Information - In order for your return to be processed properly you must:
file using Division of Revenue’s Form 228, Net Profits License Fee Return.
complete the Worksheet on the reverse of Form 228, Net Profits License Fee Return.
enter or verify the account number assigned to your business, the tax year for which the
return is filed and the federal identification number or social security number under which
your federal tax return was filed.
clearly indicate or verify the name and address of the business and note any changes.
Check the appropriate box(es) to indicate whether this is an initial, amended or final return
and if a new address is entered. In case of Amended return please attach statement indicating
reason for amendment.
attach copies of the appropriate federal tax forms and all supporting documentation.
sign and date the return.
Fully answer all questions which apply. If the question does not apply to your business indicate “NA”.
Minimum License Fee Exemption - Check the box if gross receipts from all Federal Form 1040
Schedules C, E and F plus all Form 1099-MISC were equal to or less than $4400.00. Attach all federal
forms sign and date the form and return by April 15, 2021.
Section 1 Calculation of License Fee Liability
Line 1: Enter the adjusted net business income from line 19 of Worksheet 1 on the reverse side
of Form 228. This worksheet must be completed in order to determine your adjusted net
business income.
Line 2: Enter the apportionment percentage from Section 2, Line 4, Column C.
Line 3: Multiply Line 1 by Line 2. Enter the result on Line 3.
Line 4: Sole Proprietors 65 years of age or older enter $3,000.00. All others enter zero.Line 5: Deduct Line 4 from Line 3. Enter result on Line 5.
Line 6: Multiply Line 5 by the license fee rate of 2.25%. If less than $100.00, enter $100.00.
Line 7: Enter the Minimum License Fee paid for 2020. If you did not pay the minimum for 2020,
enter zero.
Line 8: Deduct Line 7 from Line 6. (cannot be less than zero). This is the amount of license fee
due.
IF LINE 8 IS LESS THAN ZERO, ENTER ZERO. THE ANNUAL MINIMUM LICENSE FEE IS NOT REFUNDABLE.
Line 9: Enter on Line 9 any credits due. Attach a schedule of the following credits are being used.
Estimated payments; Prior Year overpayments or Payments made with extensions
Line 10: Deduct Line 9 from Line 8.
Line 11: This is the Minimum License Fee due for calendar Year 2021 ($100.00). If this is a final
return, enter zero.
Line12: Add lines 10 and 11. If result is less than zero, enter the result here and on line 15.
Line 13: If the license fee due is not paid by the due date of the return, penalty is assessed at the
rate of five (5) percent per month or portion thereof, not to exceed 25%; minimum $25.
This penalty is to be assessed on the first day after the due date and on the first day of
each succeeding calendar month until the license fee is paid, but not more than 25%.
Multiply the license fee due on Line 12 by the appropriate percentage. Enter the
result, but not less than $25.00 on the penalty Line. Interest is assessed at the rate of
one (1) percent per month or portion thereof. A fraction of a month is counted as an
entire month. Enter the result on the interest Line. Add the penalty and interest and
enter on Line 13.
Line 14: Total Amount Due (add Lines 12 and 13).
Line 15: Enter amount of overpayment from line12. Leave blank if line 12 shows License Fee Due
Line 16: Enter amount from Line 15 to be refunded.
Line 17: Enter amount from Line 15 to be credited to 2021.
Section 2 - Calculation of Business Allocation Percentage - must be completed by all licensees with
sales revenues and/or payroll both within and without Fayette County. Completion of the schedule
apportions to the Lexington-Fayette Urban County Government the proportionate part of the
licensee’s total business activity attributable to Fayette County. If your business is conducted entirely
within Fayette County it is not necessary to complete Section 2. Instead, enter 100% on Section 1,
Line 2 and complete Lines 3 through 17 of Section 1.Sales factor
Line 1, Column A: Enter the total sales revenue from the sale, lease, or rental of goods, services,
or property received from all Fayette County sources during the period
covered by the Net Profits License Fee Return. Include receipts attributable to
activities or work performed in Fayette County.
Line 1, Column B: Enter the total sales revenue from the sale, lease, or rental of goods, services,
or property received from all sources during the period covered by the Net
Profits License Fee Return.
Line 1, Column C: Divide Column A by Column B. Enter the result on Line 1, Column C. Carry out
to at least six (6) decimal places.
Payroll factor
Line 2, Column A: Enter the total compensation paid or payable to employees for work done or
services performed or rendered within Fayette County during the tax period.
Line 2, Column B: Enter the total compensation paid or payable to employees for work done or
services performed or rendered in all business locations during the tax period.
This amount should equal the total salaries and wages listed on the federal
return.
***Do not include the cost of contract labor in either Column***
Line 2, Column C: Divide Column A by Column B. Enter the result on Line 2, Column C. Carry out
to at least six (6) decimal places.
Average percentage
Line 3, Column C: Add Column C, Lines 1 and 2. Enter the result on Line 3, Column C.
Line 4, Column C: Divide Line 3, Column C by the number of percents used on Lines 1 and 2,
Column C. Enter the result on Line 4, Column C and Line 2, Section 1.
Note: If one of the factors (sales factor or payroll factor) is missing the remaining factor is the average
allocation percentage (Line 2 of Section 1). A factor (sales factor or payroll factor) is considered missing
if:
1. With regard to the sales factor, a licensee’s entire business operation did not recognize
any receipts. (i.e. Schedule C, Line 1, Columns A and B both equal zero)
2. With regards to the payroll factor, a licensee’s entire business operation did not incur any
expenditure for payroll. (i.e. Schedule C, Line 2, Columns A and B both equal zero)
Worksheet 1 - Calculation of Adjusted Net Business Income - Refer to the following list to
determine which column should be used in completing Worksheet 1.
1099-MISC: Individuals receiving payments for contract services who are not claiming
business expenses should complete the column marked Individual.
Schedule C, C-EZ, E or F: Individuals receiving income from the operation of a trade,
business or profession should complete the column marked Individual.
Form 1065: Partnerships should complete the column marked Partnership.
Form 1120, 1120A, 1120S: Corporations should complete the column marked Corporation.
Form 1041 and other associations: Fiduciaries and all others should complete the column
marked Individual.
Limited liability companies: LLC’s have the same entity classification as that elected forfederal income tax filings and shall be assessed occupational license fees accordingly.
Complete the column that corresponds to your federal tax filings.
Line 1: Enter the amount of non-employee compensation reported on federal Form 1099 MISC or
the amount of other income per Form 1040. Note: Line 1 should only be completed by
individuals who received payments for contract services who are not claiming business
expenses and did not own or operate a business during the year (attach a copy of federal
Form 1040 and Form 1099 MISC).
Line 2: Enter the net profit or (loss) per federal Schedule C or C-EZ (attach a copy of Federal Form
1040 and all applicable schedule(s)).
Line 3: Enter 100% of the short term capital gains and long term capital gains carried over from
federal Form 4797 or Form 6252 (installment sales) to federal Schedule D representing gain
from the sale of property used in the trade or business. In addition, enter the net gain or (loss)
from the sale of property used in the trade or business per federal Form 4797 (attach federal
Form 4797, Form 6252 and/or Schedule D).
Line 4: For sole proprietors using Schedule E from a jointly filed Federal Form 1040 the net income
(loss) from rental real estate activities can be combined with the net income (loss) from
other sole proprietorships of one or both spouses using any reasonable method. The election
to file using a certain method is considered to be made on the initial return filed with the
Urban County and must be consistently applied on all future returns.
NOTE: For individuals, rental income or (loss) from the rental of real property should be reported on
Line 2 only if the rental property constitutes a “business activity”. Rental property is considered a
“business activity” when the licensee’s Fayette County rental activities produce gross rents of $50,000
or more per year.
NOTE: This test is to be applied on the same basis as the individual’s filing status for federal tax
purposes. If the licensee and his/her spouse file married filing joint for federal tax purposes the licensee
and his/her spouse is limited to one $50,000 test regardless of how the Schedule E amounts were
combined on Form 228. In addition, single member LLC’s filing as sole proprietors for federal tax
purposes are considered to be individuals for purposes of this test.
Corporations, partnerships and other associations who have business activity in the Urban County and
receive income from the rental, ownership or management of real property, wherever located, are
considered to be in the business of renting said property, regardless of the amount of gross rental
income. The net profits from such rental, ownership or management shall be included in the
corporation, partnership or other association’s Net Profits License Fee Return.
Licensees shall include in net profits any capital gain arising from the sale of any real property included
in the licensee’s business of renting real property. An individual’s or fiduciary’s real property is
presumed to be included in the licensee’s business of renting property if the licensee met the “business
activity” test referenced above in the current or previous tax year.
Line 5: Enter the net profit or (loss) per federal Schedule F (attach a copy of Federal Form 1040 and all
applicable schedule(s)). Farm income should be reported only if the farm is located within
Fayette County.
Line 6: Enter the ordinary gain or (loss) on the sale of property used in a trade or business per Federal
Form 4797 (attach Federal schedules).
Line 7: Enter the ordinary income per Federal Form 1065 (attach Form 1065 and applicable
schedules).
Line 8: Enter the taxable income or (loss) per Federal Form 1120 or 1120A or Ordinary income or loss
per Federal Form 1120S (attach applicable Federal Form and schedules).Line 9: If a deduction is taken for state or local taxes (based on income) or license fees (based on
income), regardless of jurisdiction, by an individual on federal Schedule C, C-EZ, E or F or on
federal Form 1120, 1120A, 1120S or 1065 then the amount of those taxes or license fees
should be entered on Line 12.
Line10: The following income items which are allocated to the partners or shareholders are not
included as income on federal Form 1065 or Form 1120S and thus must be added to income
on Line 10.
Net loss from rental real estate activities Net long-term capital loss
Net loss from other rental activities Net loss under Sec 1231(other than due to casualty loss or theft)
Portfolio loss Net short-term capital loss
Deductions related to portfolio income Charitable contributions
Other allowable deductions per Schedule K (attach schedule) Sec129expense
Enter the total of these items on Line 10 (attach a copy of Schedule K, and rental schedule(s), if
applicable).
Line 11: If a deduction is taken on federal Form 1120 for a net operating loss then the amount of the net
operating loss should be entered on Line 11.
Line 12: Total Income – Add Line 1 through Line 11.
Line 13: The following items which are allocated to the partners and shareholders are not included in
losses or expenses on federal Form 1065 or Form 1120S and are allowed as deductions for
license fee purposes on Line 13.
Net loss from rental real estate activities Net long-term capital loss
Net loss from other rental activities Net loss under Sec 1231(other than due to casualty loss or theft)
Portfolio loss Net short-term capital loss
Deductions related to portfolio income Charitable contributions
Other allowable deductions per Schedule K (attach schedule) Sec129expense
Enter the total of these items on Line 13 (attach a copy of Schedule K, and rental schedule(s), if
applicable).
Note: Contributions to KEOGH plans, Simplified Employer Pension plans, and medical insurance
premiums whether paid on behalf of partners, shareholders or individual owners are not
deductible on the Net Profits License Fee Return.
Line 14: Enter the Alcoholic Beverage Sales Deduction. Follow the instructions below for computing
the alcoholic beverage deduction (attach a copy of the computation sheet).
Kentucky alcoholic beverage sales divided by total sales equals the alcoholic beverage
percentage.
Multiply the alcoholic beverage percentage by Line 12 minus Lines 13 and 15. Note: A
deduction may be taken only if the business engaged in the selling of alcoholic beverages
had a profit.
Line 15: Enter other adjustments not included elsewhere on this Worksheet (attach a full explanation,
including amounts, of all items). Examples are allowable expenses for which the licensee
elected to take a credit against its federal income tax liability in lieu of a deduction for
business expenses otherwise available to the licensee.
Line 16: Non-Taxable Income Examples are Tobacco buyout income, interest on government securities,
(attach schedule).Line 17: Professional Expenses not reimbursed by the partnership (attach schedule).
Line 18: Total Deductions – Add Line 13 through 17.
Line 19: Adjusted Net Profit – Subtract Line 18 from Line 12. Enter here and on Line 1 of Section 1 on the
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